The report forecasts that Iran will account for 15.00% of Middle East (ME) regional oil demand by 2013, while providing 15.89% of supply. Regional oil use of 8.24mn barrels per day (b/d) in 2001 rose to 11.25mn b/d in 2008. It should average 11.30mn b/d in 2009 and then rise to around 12.17mn b/d by 2013. Regional oil production was 22.87mn b/d in 2001, and in 2008 averaged 26.29mn b/d. It is set to rise to 28.01mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 14.63mn b/d. This total had risen to 15.04mn b/d in 2008 and is forecast to reach 15.84mn b/d by 2013. Iraq has the greatest production growth potential, followed by Qatar.

In terms of natural gas, the region in 2008 consumed 391.5bn cubic metres (bcm), with demand of 512.8bcm targeted for 2013, representing 31.0% growth. Production of 389.5bcm in 2008 should reach 610.4bcm in 2013 (+56.7%), which implies net exports rising to 98bcm by the end of the period. Iran consumed 30.04% of the region’s gas in 2008, with its market share forecast at 28.94% by 2013. It contributed 29.86% to 2008 regional gas production and, by 2013, will account for 31.13% of supply.

For 2009 as a whole, we forecast an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This is an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we continue to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, the report forecasts a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The full-year outturn is a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put at US$49.06/bbl, down 43.9% from the previous year’s level.

Iranian real GDP growth is estimated at 1.4% for 2009, following 4.7% in 2008. We are assuming 3.4% growth in 2010 and 4.2% in 2011, followed by 3.8% in 2012 and 3.4% in 2013. We expect oil demand to rise from 1.73mn b/d in 2008 to 1.83mn b/d in 2013, failing to match the underlying rate of economic expansion. The state-owned National Iranian Oil Company (NIOC) is responsible for all upstream oil and gas activities, although there is some small-scale participation by international oil companies (IOCs) on a subcontractor basis. The lack of large-scale IOC investment contributes to modest output growth, with crude production forecast to increase from 4.33mn b/d in 2008 to 4.45mn b/d in 2013, subject to OPEC quotas and the possible impact of sanctions resulting from the nuclear energy debate. Gas production should reach 190bcm by 2013, up from 116bcm in 2008. Consumption is expected to rise from 118bcm to 148bcm by the end of the forecast period, providing exports of almost 42bcm.

Between 2008 and 2018, we are forecasting an increase in Iranian oil production of 7.51%, with crude volumes rising towards 4.65mn b/d by the end of the 10-year forecast period, although there will be an OPEC-induced dip in 2009. Oil consumption between 2008 and 2018 is set to increase by 16.53%, with growth slowing to an assumed 2.0% per annum towards the end of the period and the country using 2.02mn b/d by 2018. Gas production is expected to climb to 280bcm by the end of the period. With 2008- 2018 demand growth of 52.04%, this provides export potential rising to 101bcm by 2018. Details of the 10-year forecasts can be found in the appendix to this report.

Iran holds fifth place behind Turkey in the updated Upstream Business Environment ratings. It is three points clear of Oman and is likely to keep the smaller Gulf state at bay for the foreseeable future.

The country’s score benefits from the region’s biggest gas reserves base and a very healthy oil reserves position. Reserves-to-production ratios (RPRs) are high, but strict government control of the upstream industry prevents Iran’s achieving a better overall score. The country is below the middle of the league table for the updated Downstream Business Environment rating, with some high scores but progress further up the rankings unlikely. It is rated equal seventh with Bahrain, thanks to high scores for refining capacity, oil demand, gas consumption, retail site intensity and population. The growth outlooks for oil/gas consumption and refining capacity represent relatively weak suits. Kuwait is immediately behind it in the regional rankings, and there is some long-term risk of it challenging for Iran’s seventh place.